Startup digital music company BurnLounge wants to democratize the
music retail business.

The Web-based service provides the music library, e-commerce tools and
business management software for virtually anyone to own and operate
their own digital download store. The company's founders hope to
recruit everyday music fans, allowing each to decide which acts they
want to feature and promote, as a sort of digital guerrilla marketing
play.

"It's the reincarnation of the corner record store," BurnLounge
president/COO and co-founder Ryan Dadd says. "This whole concept is
about the next generation of retail. It's about marketing to affinity
groups, to people with shared interests."

BurnLounge is essentially a digital store franchise. Regardless of
operator, each store has the same look and feel, and all carry the
BurnLounge brand. All also have access to the same music library,
pricing and transaction system, powered by partner Loudeye.

What sets each BurnLounge store apart is the programming that the
individual operator chooses. The service lets users decide which bands
or songs to feature on the home page and each genre page, as well as
create and promote customized playlists.

It also provides a host of digital marketing tools. These include an
instant messaging application that supports all popular IM communities
(such as AOL, MSN Messenger and Yahoo; chat rooms; and message
boards), DVD presentations, posters, letterheads, gift cards and a
quarterly promotional magazine.

GETTING PERSONAL

"In the music business, we've always known that personal referrals and
relationships lead to sales," says Stephen Murray, BurnLounge
president of entertainment and co-founder. "The problem is there's
been no way to quantifiably track that transaction."

That, he promises, is possible with BurnLounge. The company hopes to
capitalize on this by marketing the service to artists and their
managers, fan clubs, street-team marketing groups, labels, music
retailers and others with a large audience of music fans. Radio
personality Rick Dees is one, and he is an investor in the company.

BurnLounge offers these companies its top-level Music Mogul service,
which allows them to set up their own digital music service as well as
operate an online chain of stores. Music Mogul operators invite others
to open franchises under their oversight via the Affiliate level of
the service. These affiliate members then invite individuals to open
their own personalized stores.

The company's initial challenge is to convince users it is not a
pyramid scheme. No investment is required for inventory, a typical
feature of such pyramid programs. But there are costs involved -- from
$30 per year to a $215 upfront setup fee and $15 per month -- all for
access to various levels of music and team management software.

"It's different than Amway because you don't have to buy the
inventory, but it is multilevel marketing," says Mike McGuire, an
analyst with Gartner G2. "But that can be a valuable tool. I think any
product or service that's aimed at making the fan an artist's best
salesperson is very important."

DIGITAL COMPETITION

BurnLounge also faces competition from such Internet communities as
Yahoo. Unlike BurnLounge, Yahoo allows users to write album reviews in
its blog service, with links directly back to the Yahoo Music
Unlimited store. But BurnLounge compensates its users for sales made
via their recommendations; Yahoo does not.

"This whole class of products and services are really crucial to
helping the industry make this transition into the digital media age,"
McGuire says. "These could become tools that help more consumers
realize that (digital) can be a better way of getting and discovering
music."

BurnLounge plans to go live before the end of the year, after its has
secured deals with all five major label groups; EMI Music has already
signed on.

The point, Murray says, is to create a market for lesser-known music
by employing the community aspect of music discovery that the digital
format allows.

"Hardcore music fans, that is our core demographic," Murray
says. "They love music so much, and the idea of being able to tell
their friends about the music they think is good and be able to sell
it to them as a side job is really cool to them. The concept about the
name BurnLounge is that it's about starting a fire ... that spreads."